Does an Unemployment Extension Actually Increase Unemployment Rates?

By Unemployment-Extension.org | Aug 26, 2014 at 12:30 AM |

Americans who have found themselves unemployed during the most recent economic recession are all too familiar with the process of unemployment benefits and likely pay close attention to reports from Congress on whether or not those benefits will continue to be extended as they have been since 2008. For more than 3 million Americans, those benefits, which were extended from 26 weeks to as many as 99 weeks, were a lifeline, allowing them to continue to search for work and support their families while facing what is referred to as "long-term joblessness". Congress allowed those benefit extensions to expire at the end of 2013 and has yet to renew them.

But what has the unemployment extension actually done to the U.S. economy? Some reports suggest that even though the benefits have certainly helped many Americans, they may not have had a positive impact on the overall unemployment situations. In fact, one report from the Federal Reserve Bank of Atlanta indicates that the unemployment extension has done just the opposite.

The report, titled Human Capital Dynamics and the U.S. Labor Market, states that the extension of unemployment benefits has kept unemployment rates much higher (as much as 0.5% higher, than it would have been had the extension not occurred). The reasoning for this argument lies with both those individuals who are unemployed and their potential employers.

It is important to note that not every unemployed person is facing the same circumstances or behaves in any one particular way. Some congresspeople who have argued against unemployment extensions believe that unemployment benefits encourage those without jobs to sit at home, reaping federal benefits for doing nothing.

There is no actual evidence to suggest that is the case. Rather, what unemployment benefits, and the extension thereof, do for the long-term unemployed is provide them the financial support they need to be pickier about the jobs they look for and ultimately choose. With income from unemployment benefits, people are able to wait for jobs that are a good match for them, which can ultimately mean they will stay at the job for a longer period and be more productive while there. However, this also means that these individuals are unemployed for a longer period than they otherwise might be.

When it comes to employers, unemployment extensions can also have an impact. When unemployed individuals are able to be more selective about the jobs they apply for an ultimately accept, they are also able to be selective about the salaries they demand, which of course means looking for jobs that offer higher pay.

When potential employees are demanding high salaries, employers are less likely to create new jobs, since the investment in the new employee will come at a higher cost. This, of course, does not only include actual pay rates, but also health benefits, vacation days, and other perks. According to the Atlanta study, this confluence of picky job seekers and still-recovering employers, has led to a higher unemployment rate. All because of unemployment extensions.

Ultimately just as there is no one solution for unemployment, there is no one cause either. While unemployment extensions may have kept some people out of the workforce by choice, they have not necessarily contributed so extensively to the unemployment rate as some reports suggest.